As we've discussed over the past week, Trump's "escalate to de-escalate" strategy is about drawing the rest of the world back into alignment with the U.S., using the U.S. consumer as leverage.
And then isolating China.
Check, and check — though Europe might be an exception, given they scheduled retaliatory tariffs against the U.S. yesterday (before the Trump pause was announced).
For the rest, among the objectives in Trump's negotiations in the coming weeks and months, may involve coordinating a global effort to put China in the global trade "penalty box" – a global retaliation against China's multi-decade predatory economic strategy.
So, what is China's plan B? It looks like Europe.
Remember, over the past few months, the European Commission has announced plans for a massive fiscal spending spree, to catch up in the AI arms race and to "re-arm" itself — all by piling on debt to an already fragile fiscal situation, in a weak economy.
Who's looking for a new market to direct its excess manufacturing capacity toward, while also supplying the credit to buy their stuff?
China.
With that, the market activity over the past twenty-four hours seems to be telling that story.
U.S. government bond prices down. Dollar down.
European government bond prices up. Euro up.
It looks like Chinese capital flowing from the US and into Europe.
If so, would the European Commission take the invitation to partake in China's capacity dumping, credit fueling, industry gutting economic partnership? Maybe.
Keep in mind, from 2010 to 2012, Europe was in the depths of a sovereign debt crisis. The debt dominos were lined up for default and ready to fall, which would have unraveled the European Monetary Union. It would have been game over for the euro.
It didn't happen because the world stepped in to save it, with a coordinated policy response from major central banks (the ECB, the Fed, the BOE and the BOJ). And China played a large role. They came in as buyers of euros, and European sovereign debt and state-owned assets (like Greek seaports). They bought plenty of influence.